Gap Between High, Low Incomes in California is Twice as Big as in 1980

Inequality Historically High But Would Be Much Higher Without Safety Net

SAN FRANCISCO, May 17, 2016—The gap between high-income Californians and those with low incomes is twice as large as it was in 1980, according to a report released today by the Public Policy Institute of California (PPIC).

Income inequality has been growing for decades—a trend that has been reinforced by economic cycles in the nation as a whole and is more pronounced in California. Top incomes have fallen in recessions over the past three decades but have typically rebounded fairly quickly and gained additional ground in the long term. Middle incomes improved in the late 1990s and early 2000s, but these gains disappeared during the recent Great Recession. Low incomes declined the most during each of the major recessions since 1980.

Today, income inequality is greater than before the Great Recession. Top pre-tax cash incomes in California are 40 percent higher than they were in 1980, while middle incomes are only 5 percent higher. Low incomes are 19 percent lower.

Across the state, incomes vary substantially, and so does income inequality. At the extreme, Bay Area incomes at the bottom, middle, and top are roughly twice that of incomes in the Central Valley and Sierra region. In general, coastal areas tend toward higher incomes at all levels, while inland and northern counties typically have lower incomes. The Sacramento region most closely reflects the statewide income distribution.

Income distribution trends have differed across California regions during and after the Great Recession. Inland areas saw the largest increases in inequality between 2007 and 2014, while coastal regions have seen a reduction in inequality in the recovery from the recession.

The report comes at a time when inequality and the role of public policy in addressing it is a major focus of public debate. It finds that the safety net—tax credits as well as nutrition, cash, and housing assistance—plays a significant role in lessening inequality in California. When these local, state, and federal programs are factored in, the gap between the top and bottom incomes shrinks by 40 percent.

The majority of family resources come from work, even for very low-income households. But safety net programs assist low-income Californians substantially. The report examines the contributions that various types of programs make to incomes in the bottom 10 percent. Food assistance programs provide the largest share of total resources—17.5 percent—among low-income families. These programs include CalFresh, or the food stamp program, school breakfast and lunch programs, and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Supplemental Security Income (SSI) for the blind, elderly, and disabled provides the next largest share of resources, 7.2 percent. Federal housing aid, federal tax credits, and cash assistance—CalWORKs for families with children and General Assistance—each provide about 3 percent of total resources on average to the lowest income Californians.

Safety net programs are especially helpful to families with young children and to single-parent families. But family incomes at the lower end of the distribution remain low, the authors say.

“The social safety net reduces income inequality but does not erase poverty,” said Sarah Bohn, PPIC research fellow and coauthor of the report. “Policies that help bring low-income Californians more fully into the labor force and increase earnings hold promise for reducing inequality because families at all income levels rely most on their earnings from work.”

The report, Income Inequality and the Safety Net in California, is coauthored by PPIC senior fellow Caroline Danielson.

ABOUT PPIC

PPIC is dedicated to informing and improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett. PPIC does not take or support positions on any ballot measure or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office.